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Japan is not the only developed nation that is staring at an imminent fiscal crisis. Greece's debt-strapped government could run out of money within weeks unless it secures a 31.8billion euro tranche of bailout funds from the European Union.

And the U.S. economy is facing $4trillion worth of expiring tax cuts and automatic government spending reductions at the end of the year, and a standoff in Congress makes the chance of a compromise over the so-called 'fiscal cliff' look dim.

The impasse in Japan however comes
just after Prime Minister Yoshihiko Noda won over the opposition to pass
an increase in sales tax in the lower house of parliament. However, a
section of his party quit over the vote, and is poised to form a new
party.

Mr Noda's Democrats
still control a majority in the lower house of parliament, but are
outnumbered by the opposition in the upper house. Many analysts say
mid-term elections could be called.

'There's
so much uncertainty over the political outlook that it's hard to say
how big the risk is of the government running out of cash,' said Naoki
Iizuka, senior economist at Mizuho Securities in Tokyo.

'The key would be the timing of any snap election and who would be leading the Democratic Party at the time.'

Opposition
parties have threatened to delay Japan's deficit financing bill in the
past but have eventually yielded and voted in favour. This time,
however, the opposition may be bolder because of the row over the sales
tax hike.

Japan's budget for the current fiscal year that started in April totals 90.3trillion yen.

The
deficit financing bill allows Japan to sell 38.3 trillion yen in
government bonds to fund the budget. The remainder is funded by tax
revenue, non-tax revenue and income from bonds earmarked for public
works projects.

Government expenditure is forecast to reach 43.9 trillion yen by the end of September, Mr Azumi said.

Assuming that the deficit financing bill does not pass, the government would have only 46.1trillion yen on hand, Azumi said. This means the government is sure to run out of money by the end of October, he added.

The first in line to take a hit if Japan starts running out of money would be regional governments, which rely on tax grants from the national government for much of their spending.

The Finance Ministry could start cutting tax grants to local governments in September if there is no sign that the deficit financing bill will pass, Mr Azumi said.

The government would try to prioritise pension and unemployment payments, but once the money runs out, there is not much the government can do, finance ministry bureaucrats have said.

Prime Minister Noda could reach an agreement with opposition parties to provide some temporary funding. However, Mr Noda does not have the right to override parliament on the voting of the deficit funding bill.

Japan already has the world's largest debt burden at nearly twice the size of its $5trillion economy, and a breakdown in the government's funding could increase fears that politicians are losing their grip on public finances.